Question 1

Excess reserves are put to use by a bank when it

Accepted Answer

A)  puts cash in the vault to back existing loans. 
B)  pays off the mortgage on its building. 
C)  sells government securities. 
D)  makes loans to its customers. 
A)  puts cash in the vault to back existing loans. 
B)  pays off the mortgage on its building. 
C)  sells government securities. 
D)  makes loans to its customers.

Question 2

Banking under a system of fractional reserves is a(n)

Accepted Answer

A)  inherently risky business that is unsafe regardless of bank management. 
B)  inherently risky business that is relatively safe under prudent management. 
C)  fairly safe business unless management is irresponsible. 
D)  fairly safe business with no unusual risks. 
A)  inherently risky business that is unsafe regardless of bank management. 
B)  inherently risky business that is relatively safe under prudent management. 
C)  fairly safe business unless management is irresponsible. 
D)  fairly safe business with no unusual risks.

Question 3

Which of the following is a bank liability?

Accepted Answer

A)  cash in the vault 
B)  loans made to customers 
C)  money market deposit accounts 
D)  bank computers 
E)  All of the above are correct. 
A)  cash in the vault 
B)  loans made to customers 
C)  money market deposit accounts 
D)  bank computers 
E)  All of the above are correct.

Question 4

E-cash cards are considered a major portion of the modern money supply.

Accepted Answer

A) True 
 B)False

Question 5

One problem for economic stability is that in a period of inflation

Accepted Answer

A)  banks will be tempted to increase lending in order to increase profits. 
B)  banks will be tempted to decrease lending in order to increase profits. 
C)  profit-oriented banks will tend to hold excess reserves and decrease the money supply. 
D)  deposits will decrease and banks will have to reduce lending. 
A)  banks will be tempted to increase lending in order to increase profits. 
B)  banks will be tempted to decrease lending in order to increase profits. 
C)  profit-oriented banks will tend to hold excess reserves and decrease the money supply. 
D)  deposits will decrease and banks will have to reduce lending.

Question 6

The maximum increase in the money supply possible from a deposit of $D into the banking system where R is the reserve requirement is

Accepted Answer

A)  (1/R)(D - R). 
B)  R × D. 
C)  (1/R)(1 - R)D. 
D)  (1/R)D. 
A)  (1/R)(D - R). 
B)  R × D. 
C)  (1/R)(1 - R)D. 
D)  (1/R)D.

Question 7

The Federal Deposit Insurance Corporation insures

Accepted Answer

A)  savings accounts against unlawful transfer into checking accounts. 
B)  bank deposits against the failure of an individual bank. 
C)  that the bank will maintain sufficient required reserves. 
D)  bank buildings and property against fire and theft. 
A)  savings accounts against unlawful transfer into checking accounts. 
B)  bank deposits against the failure of an individual bank. 
C)  that the bank will maintain sufficient required reserves. 
D)  bank buildings and property against fire and theft.

Question 8

When banking first began, it could be said that paper money was in reality

Accepted Answer

A)  worthless. 
B)  receipts. 
C)  government money. 
D)  fiat money. 
A)  worthless. 
B)  receipts. 
C)  government money. 
D)  fiat money.

Question 9

Liquidity refers to the ability of an asset to hold its value in periods of inflation.

Accepted Answer

A) True 
 B)False

Question 10

The major contribution of goldsmiths to the development of modern banking was

Accepted Answer

A)  local banking. 
B)  market banking. 
C)  fractional reserve banking. 
D)  gold standard banking. 
A)  local banking. 
B)  market banking. 
C)  fractional reserve banking. 
D)  gold standard banking.

Question 11

The Ponderosa Bank receives a new deposit of $2,500.The reserves requirement is 20 percent.How much can this bank loan out as a result of this deposit?

Accepted Answer

A)  $25,000 
B)  $12,500 
C)  $3,125 
D)  $2,000 
E)  $500 
A)  $25,000 
B)  $12,500 
C)  $3,125 
D)  $2,000 
E)  $500

Question 12

What is the criticism leveled against deposit insurance by the FDIC?

Accepted Answer

Depositors who are freed from any risk o

Question 13

Why are credit cards not considered part of the money supply?

Accepted Answer

Credit cards lengthen the period of time

Question 14

The most common form of trading goods for goods is

Accepted Answer

A)  bilateral trade. 
B)  government commodity distribution. 
C)  status-based trades. 
D)  barter. 
E)  payments in kind. 
A)  bilateral trade. 
B)  government commodity distribution. 
C)  status-based trades. 
D)  barter. 
E)  payments in kind.

Question 15

Paper money in the United States is

Accepted Answer

A)  backed by gold in Fort Knox. 
B)  partially backed by gold and silver. 
C)  entirely fiat money. 
D)  fully convertible into gold at fixed prices. 
A)  backed by gold in Fort Knox. 
B)  partially backed by gold and silver. 
C)  entirely fiat money. 
D)  fully convertible into gold at fixed prices.

Question 16

One aspect of bank accounting is that many liabilities of banks are

Accepted Answer

A)  assets of other persons and businesses in the economy. 
B)  also liabilities of other persons and businesses in the economy. 
C)  not matched by liabilities of most other banks. 
D)  not actually owed to any other person or business in the economy. 
A)  assets of other persons and businesses in the economy. 
B)  also liabilities of other persons and businesses in the economy. 
C)  not matched by liabilities of most other banks. 
D)  not actually owed to any other person or business in the economy.

Question 17

Banks in the United States may create new money equal to their amount of required reserves.

Accepted Answer

A) True 
 B)False

Question 18

Most checkable deposits are insured up to $250,000 by

Accepted Answer

A)  state banking commissions. 
B)  the Federal Reserve Board. 
C)  U.S.Department of the Treasury. 
D)  the Federal Deposit Insurance Corporation. 
A)  state banking commissions. 
B)  the Federal Reserve Board. 
C)  U.S.Department of the Treasury. 
D)  the Federal Deposit Insurance Corporation.

Question 19

When prices for goods and services are quoted in money terms, this is an example of money being used as a store of value.

Accepted Answer

A) True 
 B)False

Question 20

An important effect of fractional reserve banking is that bankers have

Accepted Answer

A)  little control over total reserves. 
B)  total control over the amount of lending in the economy. 
C)  no control over the amount of reserves in the banking system. 
D)  some discretion over the money supply. 
A)  little control over total reserves. 
B)  total control over the amount of lending in the economy. 
C)  no control over the amount of reserves in the banking system. 
D)  some discretion over the money supply.

Exam 29: Money and the Banking System

Excess reserves are put to use by a bank when it

Banking under a system of fractional reserves is a(n)

Which of the following is a bank liability?

E-cash cards are considered a major portion of the modern money supply.

One problem for economic stability is that in a period of inflation

The maximum increase in the money supply possible from a deposit of $D into the banking system where R is the reserve requirement is

The Federal Deposit Insurance Corporation insures

When banking first began, it could be said that paper money was in reality

Liquidity refers to the ability of an asset to hold its value in periods of inflation.

The major contribution of goldsmiths to the development of modern banking was

The Ponderosa Bank receives a new deposit of $2,500.The reserves requirement is 20 percent.How much can this bank loan out as a result of this deposit?

What is the criticism leveled against deposit insurance by the FDIC?

Why are credit cards not considered part of the money supply?

The most common form of trading goods for goods is

Paper money in the United States is

One aspect of bank accounting is that many liabilities of banks are

Banks in the United States may create new money equal to their amount of required reserves.

Most checkable deposits are insured up to $250,000 by

When prices for goods and services are quoted in money terms, this is an example of money being used as a store of value.

An important effect of fractional reserve banking is that bankers have

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Demand-Side Equilibrium: Unemployment or Inflation?

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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